U.K., Spain Lead Renewables-Investment Index; Policy Confidence "Would Rocket U.S. to Top"

The United Kingdom and Spain continue their reign as the two most attractive national environments for renewable-energy investment, according to the latest quarterly Ernst & Young Renewable Energy Country Attractiveness Index . The two countries have jostled for position in the top four since the Index was launched in February 2003. However, both countries have experienced a downgrading in recent months due to adverse market conditions. The United Kingdom in particular could start to slide down the rankings if development momentum does not soon pick up both in on and offshore wind.

While development may be slowing up in the more mature renewable-energy markets, there is plenty of investment potential elsewhere, according to Jonathan Johns, Ernst & Young’s head of global renewable energy. "It may not be long before the new markets steal the renewable-energy industry limelight from the likes of the U.K. and Germany," he warns. "The market should continue to watch this space where Canada, China and India are concerned."

China is rapidly moving towards becoming a major renewable-energy market, according to the report, as government-support mechanisms take effect and manufacturers set up local plants in anticipation of the county’s huge market potential. While Canada’s policy environment is improving and large investments are being made, India has had a record development year and is now the world’s fifth largest market in terms of installed wind capacity.

Investment in offshore projects has, so far, failed to take off on the scale that had been predicted and this could spell bad news for the United Kingdom, according to Ernst & Young. The majority of offshore wind development to-date has taken place on the balance sheets of the large power sector players but as the scale and number of offshore projects start to increase, sponsors will be looking to project finance to raise capital and transfer risk.

"The banks’ appetite for offshore wind has grown over the last few years and the key question is no longer if they will lend to offshore wind, but how," Johns said. "They are ready to put their money on the table for the right offshore wind investment, but projects must be properly structured with risk mitigation strategies in place."

There are further investment opportunities available to the UK renewables market, since the recent surge in European Emissions Trading Scheme (ETS) carbon prices. Johns says, "The U.K. government has indicated that the power sector will carry the burden of any decrease in its EU emissions allowances," Johns said. "Which means that high carbon process could drive large energy companies’ interest in renewable-energy project development and acquisition."

The United States is another outside threat to the United Kingdom’s position at the top of the table. It has retained third this quarter, despite development rates taking off under the renewed Production Tax Credit (PTC). But industry confidence in the scheme remains low and the boom-bust development cycle looks set to continue, according to Ernst & Young.

However, the United States still has huge resource potential and low development costs, according to Johns, and if policy confidence could be established, it would rocket the United States to the top of the tables for renewable-energy investment attractiveness.

(Source: Ernst & Young news release, 4/18/05)